How to Make Winning Trades?

To some folks, trading charts and graphs look like electrocardiograms – a heart attack waiting to happen. The ups and downs that characterize the financial markets are enough to keep traders at bay and may serve as a deterrent to dabbling in the financial markets. However, it is precisely this volatility that generates opportunities for profit potential. In simple speak, volatility is a reference to the fluctuations around the average return of a financial instrument.

Volatility Measures to Determine Investment Opportunities

Economists and financial gurus use standard deviations to determine how far an asset swings up or down from the mean. The mean is the moving average. If asset prices tend to coagulate close to the mean, there is little volatility to speak of. In markets like this, the only benefit to be had is long-term slow and steady appreciation of the underlying asset. However, there are multiple asset categories that are subject to wild swings – akin to a pendulum swinging from one extreme to the next. These asset categories include many tech stocks, bio pharmaceutical stocks, crypto currencies and the like.

The CBOE Volatility Index

When we speak of securities, there is always a higher risk when the volatility is higher. The reason for this is that volatility cuts both ways. It’s not only an upward movement from the mean, it’s a downward movement as well. An interesting correlation exists between volatility and stock market performance. When markets are bearish, we tend to see significant volatility, as indicated by the VIX Indicator. The CBOE volatility index – is representative of the volatility in the financial markets. It has a 52-week low of 8.56 – indicating bullish performance of stock markets, and a high of 50.30 indicating bearish performance. The current level of the CBOE Volatility Index (VIX) is around 18.18 (March 6, 2018).

How to Use Economic Indicators to Benefit from the Stock Market?

There are multiple measures that traders can use to improve their chances of success in the financial markets. These include a broad range of economic indicators. They include the following:

NFP Data – Non-Farm Payroll Data

Inflation Rate – The Rate of Price Increases

Fed Interest Rate – The Federal Funds Rate

Unemployment Rate – The Number of People Currently Seeking Work and Unable to Find Work

Consumer Confidence – How Consumers Perceive the Performance of the Economy

Wilkins Finance trading specialist Burns Cornwallis continually stresses the importance of a trading education for newcomers to the scene.

‘It’s truly mind-boggling how much a trader can benefit from following market-related activity. There are multiple economic indicators that you can use as yardsticks for evaluating the performance of your trades. For starters, nonfarm payroll data is a good barometer of the overall health of the US economy. The higher the figure, the better. Inflation rates are an entirely different animal. When the inflation rate is rising too quickly, this is not good for the economy.

It indicates an overheating of economic activity and is likely to be tempered by a Federal Reserve Bank rate hike. The Fed has the dual task of price stability and full employment. Price stability must be maintained by tempering price rises. When too much money is chasing too few goods, you have an inflationary situation at play. Other factors to bear in mind include the unemployment rate – the lower the better, and consumer confidence levels. When consumers are confident about the performance of the economy, this is a positive indicator.

The levels of the major bourses are the most obvious indicators of economic performance. Wall Street has been rallying since the pullback in February. The 1-year performance of the Dow Jones, S&P 500 index, and NASDAQ composite index reflects gains of 18.99%, 14.90%, and 26.00% respectively. Such bullishness cannot be ignored, despite the occasional pullback. One more point is worthy of mention on market corrections: these present profitable opportunities for value-driven investments and trades. In other words, traders routinely buy on the dip.’

Richard is the chief author of this blog. He worked as a financial advisor in money market form last 10 yrs. His financial sense in Share trading and any other trading is just outstanding. He just shares his knowledge and experience through this blog. You can contact him directly though CFD-Providers.com.